JAKARTA - The economies of Turkey and Argentina are at risk of facing recession in the coming quarters even though the currency crisis in the two countries has passed.
In its report, Moody's Investors Service stated that the weakening of the Turkish lira currency and Argentine peso, two of the worst performing currencies this year globally, can turn into a sharp economic contraction as growth slowed in all developed and developing markets.
"The Turkish economy is likely to contract until the first half of next year due to weaker lira and rising borrowing costs," wrote Moody's report as quotoed by Bloomberg.
Meanwhile, gross domestic product (GDP) in Argentina will not return to positive growth until 2020 as a result of large monetary and fiscal consolidation under the International Monetary Fund (IMF) program.
Turkish inflation is moving at the fastest pace since President Recep Tayyip Erdogan came to power 15 years ago, while high interest rates have obscured the investment outlook. Despite being able to recover some of its weakness, lira still weakens 30% against the US dollar so far this year.
"Double-digit inflation, a steep increase in borrowing costs and curtailed bank lending are likely to weigh on household purchasing power, private consumption and investment," Moody's continued.
In Argentina, inflation expectations will continue to rise despite the tightening measures by the country's central bank. According to Moody's, it will take some time before the benefits of monetary policy can be fully realised. Inflation is expected to fall gradually towards 20% by the end of 2020. (MS)